How to Start a Hedge Fund in Ireland
Updated on Wednesday 22nd March 2023
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Ireland represents a very attractive market for starting a hedge fund. An important aspect when referring to Ireland is that in the last years the country became a leading jurisdiction for the domiciliation of alternative investment funds and hedge funds. More importantly, a proportion of 63% of the European hedge funds is represented by Irish structures.
Legislation for hedge funds in Ireland
Investors interested in how to start a hedge fund in Ireland must know that there isn’t a specific regulatory framework designed for such structures. A hedge fund in Ireland is usually incorporated with the purpose of performing alternative investment schemes and thus, they may use various legislative frameworks designed for investment funds.
More details on the Irish hedge funds are available in the video below:
However, as a general rule, such structures can be registered under two main regulatory classifications.
Irish hedge funds can be set up as UCITS (undertakings for collective investments of transferable securities) and non-UCITS. UCITS structures are regulated under the European Union’s directives, while the non-UCITS derive from the national legislation applicable in Ireland.
The UCITS Directive provides a more flexible regulatory framework, as the investors interested in hedge funds startups under this structure can benefit from the European passport. The regulation is not applicable in the case of non-UCITS vehicles.
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Register a hedge fund in Ireland
The procedure on how to start a fund in Ireland is given by the regulations applied by the Central Bank of Ireland, which is the main regulatory body for any type of investment vehicle registered here.
The fund should be registered under one of the following legal entities:
• investment company;
• unit trust;
• common contractual fund;
• investment limited partnership.
In order to start a hedge fund in Ireland, the Central Bank will have to authorize the activities carried out by the vehicle. It is necessary to know that hedge funds set up as UCITS will require an investment manager, who must also be authorized by the institution.
Types of investors Irish hedge funds can target
Considering hedge funds rely on high-risk investment strategies, they usually target professional investors. This is also such structure can be categorized as:
- Qualifying Investor Funds (QIFs);
- Retail Investor funds;
- Professional Investor Funds (PIFs).
In Ireland, most hedge funds are created as Qualifying Investor Funds. Our affiliates here can explain the main aspects associated with starting a hedge fund.
Authorization requirements for hedge funds in Ireland
Just like other types of funds, hedge funds also require authorization from the Central Bank of Ireland. In the case of structures created as QIFs, here are the main licensing requirements:
- the fund requires an investor minimum subscription threshold of at least EUR 100,000;
- institutions may only market their products to the qualified investors listed in Annex II of Directive 2004/39/EC (Markets in Financial Instruments Directive);
- institutions may also only market their products to qualified investors who receive an appraisal from an EU credit institution, a MiFID firm.
By qualified investors, one should understand regulated entities, institutional investors, and large undertakings, but also certain categories of individual investors.
One of the greatest advantages of setting up a hedge fund in Ireland is the quick authorization procedure. Based on the type of fund and structure used, here are the main aspects to consider:
- 20 working days for UCITS and RIAIFs;
- 10 working days for UCITS and RIAIFs through the fast-track procedure;
- 24 hours for QIFs.
If you need more information on the authorization requirements for an Irish hedge fund, you can rely on our partners onsite.
Tax benefits when setting up a hedge fund in Ireland
Investment funds often qualify for the following tax exemptions if they are established in Ireland:
- non-Irish investors are subject to no withholding tax on payments made through their fund in Ireland;
- Irish investment funds are exempt from paying the tax on income and the tax on gains;
- there are no transfer taxes in the case of the transfer or redemption of units addressed to foreign investors (who are not Irish residents).
The investment funds sector in Ireland
Ireland has established itself as a top domicile for regulated investment funds with an international focus during the past 25 years. But in more recent years, it has expanded to become the top European jurisdiction for the creation and maintenance of alternative investment schemes, particularly hedge funds. Recent market figures reveal that over 40% of worldwide alternative investment funds (including Irish and non-Irish domiciled) are administered in Ireland, while over 63% of European-domiciled hedge funds currently employ Irish legal structures.
Under Irish law, the word "hedge fund" is not defined nor given a particular regulatory classification. In general, hedge funds are thought of as organizations that use prime brokerage services, leverage, and a wide variety of investment strategies.
If you decide to start a fund in Ireland, you can use some of the most popular types of structures that are also used at a worldwide level, namely UCITS, but also AIFs (Alternative Investment Funds).
According to the Irish Funds Industry Association Statistics:
- at the end of 2019, there were 7,707 investments funds operating in Ireland;
- in 2020, their number increased to 7,962, while in 2021 it reached 8,372;
- at the end of March 2022, there were 8,391 domiciled in Ireland;
- the net assets held by these funds at the end of March 2022 were EUR 3,916 million.
Businessmen can address to our team of Irish affiliates for more details on the registration of a hedge fund in this country.